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Frishman on Pope, Capitalism

Posted on Friday, January 17, 2014

Professor of Economics Alan Frishman recently had a guest essay published in the Democrat and Chronicle in Rochester, and reprinted in other Gannett News publications. Frishman's article was a rebuttal to a previous guest essay, "Pope is wrong about capitalism."

In his piece, Frishman counters "Capitalism is a good economic system that virtually everyone ascribes to, including Pope Francis. But capitalism has a spectrum ranging from a system with no limits or controls (which guest essayist Jim Ryan favors) to one with laws, rules and regulations that correct market failures and control the excesses of production and wealth."

He explains, "In the United States, 120 years ago, there were no laws to limit hours of work per week, to prevent child labor, to control pollution, or even to charge income tax. Some became very wealthy while the average American worked in sweat shop conditions; this is what Ryan's column champions for Africa, Asia and Latin America today. However, over the last century, the U.S. rejected unfettered capitalism and moved toward a controlled, humane capitalism, which is exactly what the Pope is advocating for everyone in the world."

Frishman, who joined the faculty in 1976, received his Ph.D. and M.A. in economics as well as a certificate in African Studies, from Northwestern University. He received his B.S. in mathematics from the City College of New York. His academic and scholarly interests focus on the economic development, urbanization and industrialization of countries in Africa (primarily Nigeria), Asia and Latin America. He is a member of the American Economics Association and the African Studies Association.

The full article by Frishman follows.

Democrat and ChronicleWeb Essay: There are different forms of capitalismAlan Frishman • Guest Essayist • January 2, 2014

The guest essay "Pope is wrong about capitalism" in the Dec. 22 Democrat and Chronicle is the typical wealthy person's rationalization of why unfettered capitalism and unlimited profits are desirable for everyone, everywhere. It is based on the "trickle-down theory" of how excessive income and wealth for the rich eventually help everyone in every income class.

Capitalism is a good economic system that virtually everyone ascribes to, including Pope Francis. But capitalism has a spectrum ranging from a system with no limits or controls (which guest essayist Jim Ryan favors) to one with laws, rules and regulations that correct market failures and control the excesses of production and wealth. In the United States, 120 years ago, there were no laws to limit hours of work per week, to prevent child labor, to control pollution, or even to charge income tax. Some became very wealthy while the average American worked in sweat shop conditions; this is what Ryan's column champions for Africa, Asia and Latin America today. However, over the last century, the U.S. rejected unfettered capitalism and moved toward a controlled, humane capitalism, which is exactly what the Pope is advocating for everyone in the world.

The ability to make a profit is an important incentive for an entrepreneur to start a business and to keep that business operating. But there are normal profits and excessive profits; the latter leads to huge wealth and a terrible distribution of income. Some, like Ryan, view laws and regulations that restrict profits to the normal range as a disruption and a bad idea; for the past 30 years, that belief has spread in the U.S., resulting in a skewed distribution of income and a shrinking middle class.

The "trickle-down" theory states that if the rich get richer, they will create more economic activity and jobs - sometimes expressed as "a rising tide lifts all boats." The theory is aptly named because income usually trickles, rather than flows down to those with lower income and those without boats cannot take advantage of the rising tide; some may even drown. The theory is flawed; over the past decade while the rich have gained immense profits, everyone else has been left behind in the U.S. and sweat shops have multiplied abroad.

Pope Francis is calling for capitalism with moderation - a living wage, reasonable working conditions, and limited hours of work per week for everyone in the world. That means that capitalists should not exploit their workers, should earn normal profits and should obey the regulations regarding child labor and pollution. That sounds logical to most of us although it would reduce the huge incomes and wealth that the rich have been able to accumulate for decades.

Alan Frishman of Rochester is a professor of economics at Hobart and William Smith Colleges in Geneva, Ontario County.